Trade War Spurs Manufacturing Investment in Malaysia

The Malaysian state of Penang is winning from global investors’ search for safe havens amid the U.S.-China trade tensions.

Foreign direct investments into its manufacturing sector surged 1,360% to 8.47 billion ringgit (US$2 billion) in the first quarter from a year ago, more than for the entire 2018.

The state stands to gain from changes in the global supply chain as it’s well-connected with a strong talent pool and supportive public policies, Penang Chief Minister Chow Kon Yeow said on June 12.

The state, already home to companies from Intel Corp. to Dell Technologies Inc., makes up 42% of Malaysia’s manufacturing FDI. Recent investments in Penang include U.S. semiconductor company Micron Technology Inc.‘s new solid-state drive assembly and testing center, and Florida-based Jabil Circuit Inc.‘s purchase of 20 acres of land to expand its facility.

“Malaysia is reaping benefits from business relocation as well as trade and investment diversions caused by the trade war,” Finance Minister Lim Guan Eng said in a Thursday statement, adding that the rise in investments as well as industrial production signal “healthy” economic growth in the second quarter.

Chow is wary of the near-term outlook and cautions that the investment surge may not be repeated in the second or third quarters. While some companies benefit from the trade war, others are negatively affected as their customers take a wait-and-see approach, he said. Penang’s investment outlook remains “on the right track” over the medium to long term, Chow said.

The state had moved quickly to court investors amid the trade war, signing a cooperation deal with China Chamber of International Commerce, giving subsidized rental rates for small businesses and setting up a seed fund for technology startups